SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-Q



xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For Quarterly Period Ended June 30, 2011



or



[ ]   TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from          
to



Commission File Number 0-28585





AuraSource, Inc.

(Exact name of registrant as specified in its
charter)



|Nevada
        (State or Other Jurisdiction of Incorporation
        or Organization) | 68-0427395
        (IRS Employer Identification No.)
|------------------------------------------------------------------------------------- | ----------------------------------------------------



1490 South Price Rd. #219

Chandler, AZ 85286

(Address of principal executive offices,
zip code)



Registrant's telephone number (including area
code): (480) 292-7179



Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.

YESxNO [ ]



Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (section 232.405 of this chapter) during the preceding twelve months (or shorter period that the registrant
was required to submit and post such files).

YESoNOx



Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated
filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large
Accelerated FileroAccelerated FileroNon-accelerated FileroSmaller reporting companyx



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]Nox



Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date.



|Class                         |  | Outstanding at August 12, 2011
|----------------------------- |  | ------------------------------
|Common Stock, $.001 par value |  | 31,362,190                    















AURASOURCE, INC.





Table of Contents



|PART I  | FINANCIAL INFORMATION                                                                          |   
|------- | ---------------------------------------------------------------------------------------------- | --
|ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS:                                                             |   
|        | Consolidated Balance Sheets — June 30, 2011 (Unaudited) and March 31, 2011                     | 3 
|        | Consolidated Statements of  Operations (Unaudited) — Three months ended June 30, 2011 and 2010 | 4 
|        | Consolidated Statements of Stockholders’ Equity (Deficit) — Three months ended June 30, 2011   | 5 
|        | Consolidated Statements of Cash Flows (Unaudited) —Three months ended June 30, 2011 and 2010   | 6 
|        | Notes to Consolidated Financial Statements                                                     | 7 
|ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          | 11
|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     | 13
|ITEM 4. | CONTROLS AND PROCEDURES                                                                        | 13
|        |                                                                                                |   
|PART II | OTHER INFORMATION                                                                              | 13
|ITEM 1. | LEGAL PROCEEDINGS                                                                              | 13
|ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                    | 13
|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES                                                                | 13
|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            | 13
|ITEM 5. | OTHER INFORMATION                                                                              | 13
|ITEM 6. | EXHIBITS                                                                                       | 16















-2-









PART I - FINANCIAL INFORMATION



ITEM I — CONSOLIDATED FINANCIAL
STATEMENTS



AuraSource, Inc.

(A Development Stage Enterprise)

Consolidated Balance Sheets





|                                                                                                                                                                       |  | June 30,    |            | March 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | ---------
|                                                                                                                                                                       |  | 2011        |            | 2011     
|ASSETS                                                                                                                                                                 |  | (Unaudited) |            |          
|Current assets                                                                                                                                                         |  |             |            |          
|Cash and equivalents                                                                                                                                                   |  | $           | 1,257,929  |          
|Due from affiliate                                                                                                                                                     |  |             | 138,540    |          
|Prepaid expenses                                                                                                                                                       |  |             | 15,375     |          
|Total current assets                                                                                                                                                   |  |             | 1,411,844  |          
|                                                                                                                                                                       |  |             |            |          
|Fixed assets, net of accumulated depreciation                                                                                                                          |  |             | 130,801    |          
|                                                                                                                                                                       |  |             |            |          
|Intangible assets, net                                                                                                                                                 |  |             | 753,530    |          
|                                                                                                                                                                       |  |             |            |          
|Total assets                                                                                                                                                           |  | $           | 2,296,175  |          
|                                                                                                                                                                       |  |             |            |          
|                                                                                                                                                                       |  |             |            |          
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                   |  |             |            |          
|Current liabilities                                                                                                                                                    |  |             |            |          
|Accounts payable                                                                                                                                                       |  | $           | 16,329     |          
|                                                                                                                                                                       |  |             |            |          
|Total current liabilities                                                                                                                                              |  |             | 16,329     |          
|                                                                                                                                                                       |  |             |            |          
|Commitments and contingencies                                                                                                                                          |  |             |            |          
|                                                                                                                                                                       |  |             |            |          
|Shareholders' equity                                                                                                                                                   |  |             |            |          
|Preferred stock, 10,000 shares authorized, no shares issued and                                                                                                        |  |             |            |          
|outstanding, no rights or privileges designated                                                                                                                        |  |             | —          |          
|Common stock, $.001 par value, 150,000,000 shares authorized 31,362,190 and 29,262,190 shares issued and outstanding at June 30, 2011 and March 31, 2011, respectively |  |             | 31,362     |          
|Additional paid in capital                                                                                                                                             |  |             | 6,713,930  |          
|Accumulated deficit                                                                                                                                                    |  |             | (4,465,446 | )        
|Total shareholders' equity                                                                                                                                             |  |             | 2,279,846  |          
|                                                                                                                                                                       |  |             |            |          
|Total liabilities and shareholders' equity                                                                                                                             |  | $           | 2,296,175  |          
|                                                                                                                                                                       |  |             |            |          
|                                                                                                                                                                       |  |             |            |          
|The accompanying notes are an integral part of these consolidated financial statements                                                                                 |  |             |            |          
|                                                                                                                                                                       |  |             |            |          





-3-





AuraSource, Inc.

(A Development Stage Enterprise)

Consolidated Statements of Operations

Three Months Ended June 30, 2011 and 2010
and Period March 15, 1990 (Inception) through June 30, 2011

(Unaudited)



|                                           |  | Three months ended June 30, |            | March 15, 1990 (Inception) to June 30,
|------------------------------------------ |  | --------------------------- | ---------- | --------------------------------------
|                                           |  | 2011                        |            | 2010                                  
|                                           |  |                             |            |                                       
|Revenue, net                               |  | $                           | —          |                                       
|                                           |  |                             |            |                                       
|Cost of revenue                            |  |                             | —          |                                       
|                                           |  |                             |            |                                       
|Gross profit                               |  |                             | —          |                                       
|                                           |  |                             |            |                                       
|Operating expenses:                        |  |                             |            |                                       
|General & administrative expenses          |  |                             | 332,919    |                                       
|Total operating expenses                   |  |                             | 332,919    |                                       
|                                           |  |                             |            |                                       
|Loss from operations                       |  |                             | (332,919   | )                                     
|                                           |  |                             |            |                                       
|Merger fee, net                            |  |                             | —          |                                       
|Interest income / (expense) and other, net |  |                             | 8,608      |                                       
|                                           |  |                             |            |                                       
|Net loss applicable to common stockholders |  | $                           | (324,311   | )                                     
|                                           |  |                             |            |                                       
|Basic & Diluted Loss per share             |  | $                           | (0.01      | )                                     
|                                           |  |                             |            |                                       
|Weighted average shares outstanding        |  |                             | 30,343,509 |                                       
|                                           |  |                             |            |                                       
|                                           |  |                             |            |                                       









The accompanying notes are an integral part
of these consolidated financial statements.



-4-





AURASOURCE, INC.

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIT)

MARCH 15, 1990 (INCEPTION)

THROUGH JUNE 30, 2011

(Unaudited after March 31, 2011)



|                                                          |  | Preferred Stock |            | Common Stock |  | APIC   |   | Accumulated Deficit |  | Total
|--------------------------------------------------------- |  | --------------- | ---------- | ------------ |  | ------ | - | ------------------- |  | -----
|                                                          |  | Shares          |            | Amount       |  | Shares |   | Amount              |  |      
|Balance at March 15, 1990                                 |  |                 |            |              |  |        | $ |                     |  |      
|Common stock issued for services                          |  |                 |            |              |  |        |   |                     |  |      
|Acquire oil and gas properties                            |  |                 | 7,000      |              |  |        |   |                     |  |      
|Capital contributed                                       |  |                 |            |              |  |        |   |                     |  |      
|Fair value of salaries donated                            |  |                 |            |              |  |        |   |                     |  |      
|Reclassify common stock for repurchase obligation         |  |                 |            |              |  |        |   |                     |  |      
|Rescission of oil and gas purchase:                       |  |                 |            |              |  |        |   |                     |  |      
|Common stock shares not returned in lieu of services      |  |                 | (7,000     | )            |  |        |   |                     |  |      
|Cancellation of repurchase obligation                     |  |                 |            |              |  |        |   |                     |  |      
|Issuance of preferred stock for services                  |  |                 | 1,100,000  |              |  |        |   |                     |  |      
|Common stock for services                                 |  |                 |            |              |  |        |   |                     |  |      
|Conversion of preferred stock                             |  |                 | (1,100,000 | )            |  |        |   |                     |  |      
|Stockholder contributions                                 |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares for acquisition of Mobile Nation, Inc. |  |                 |            |              |  |        |   |                     |  |      
|Common stock for services                                 |  |                 |            |              |  |        |   |                     |  |      
|Shares returned to treasury                               |  |                 |            |              |  |        |   |                     |  |      
|Common stock for services                                 |  |                 |            |              |  |        |   |                     |  |      
|Capital contributed                                       |  |                 |            |              |  |        |   |                     |  |      
|Net loss                                                  |  |                 |            |              |  |        |   |                     |  |      
|Net income                                                |  |                 |            |              |  |        |   |                     |  |      
|Balance at March 31, 2008                                 |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares, July 2008                             |  |                 |            |              |  |        |   |                     |  |      
|Stock compensation                                        |  |                 |            |              |  |        |   |                     |  |      
|Issuance of options                                       |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares, March 2009                            |  |                 |            |              |  |        |   |                     |  |      
|Net loss                                                  |  |                 |            |              |  |        |   |                     |  |      
|Balance at March 31, 2009                                 |  |                 |            |              |  |        |   |                     |  |      
|Capital contribution                                      |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares for services, May 2009                 |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares, September 2009                        |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares, October 2009                          |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares for services, November 2009            |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares for services, March 2010               |  |                 |            |              |  |        |   |                     |  |      
|Issuance of options                                       |  |                 |            |              |  |        |   |                     |  |      
|Offering costs related to share issuance                  |  |                 |            |              |  |        |   |                     |  |      
|Net loss                                                  |  |                 |            |              |  |        |   |                     |  |      
|Balance at March 31, 2010                                 |  |                 |            |              |  |        |   |                     |  |      
|Issuance of options                                       |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares, July 2010                             |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares, August 2010                           |  |                 |            |              |  |        |   |                     |  |      
|Net loss                                                  |  |                 |            |              |  |        |   |                     |  |      
|Balance at March 31, 2011                                 |  |                 |            |              |  |        |   |                     |  |      
|Issuance of options April 1, 2011                         |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares, May 13, 2011                          |  |                 |            |              |  |        |   |                     |  |      
|Issuance of shares for services, June 6, 2011             |  |                 |            |              |  |        |   |                     |  |      
|Net loss                                                  |  |                 |            |              |  |        |   |                     |  |      
|Balance at June 30, 2011                                  |  |                 |            |              |  |        |   |                     |  | $    
|                                                          |  |                 |            |              |  |        |   |                     |  |      

















The accompanying notes are an integral part
of these consolidated financial statements.

-5-





AuraSource, Inc.

(A Development Stage Enterprise)

Consolidated Statements of Cash Flows

Three Months Ended June 30, 2011 and 2010
and Period March 15, 1990 (Inception) through June 30, 2011

(Unaudited)

|                                                                            |  |      |           | March 15, 1990 (Inception) to June 30,
|--------------------------------------------------------------------------- |  | ---- | --------- | --------------------------------------
|                                                                            |  | 2011 |           | 2010                                  
|Cash flows from operating activities:                                       |  |      |           |                                       
|Net loss                                                                    |  | $    | (324,311  | )                                     
|Adjustments to reconcile net loss to net cash used in operating activities: |  |      |           |                                       
|Depreciation                                                                |  |      | 1,939     |                                       
|Stock issued for services                                                   |  |      | 52,000    |                                       
|Options issued for services                                                 |  |      | 17,350    |                                       
|Fair value of salaries donated as capital                                   |  |      | —         |                                       
|Changes in operating assets and liabilities:                                |  |      |           |                                       
|Due from affiliate                                                          |  |      | (70,897   | )                                     
|Prepaid expenses                                                            |  |      | (5,374    | )                                     
|Accounts payable                                                            |  |      | 2,807     |                                       
|Accrued interest payable – related parties                                  |  |      | —         |                                       
|Non-refundable deposits                                                     |  |      | —         |                                       
|Net cash used in operating activities                                       |  |      | (326,486  | )                                     
|                                                                            |  |      |           |                                       
|Cash flows from investing activities :                                      |  |      |           |                                       
|Advances from stockholders, net                                             |  |      | —         |                                       
|Capital equipment purchases                                                 |  |      | (58,878   | )                                     
|Cash paid for acquisition of intangible                                     |  |      |           |                                       
|Sale of assets to MongSource net of cash on hand                            |  |      | —         |                                       
|Net cash used in investing activities                                       |  |      | (58,878   | )                                     
|                                                                            |  |      |           |                                       
|Cash flows from financing activities                                        |  |      |           |                                       
|Proceeds from issuance of common stock                                      |  |      | 1,001,046 |                                       
|Offering costs                                                              |  |      | —         |                                       
|Net proceeds from issuance of note payable                                  |  |      | —         |                                       
|Repayment of debt                                                           |  |      | —         |                                       
|Net cash provided by financing activities                                   |  |      | 1,001,046 |                                       
|                                                                            |  |      |           |                                       
|Net change in cash and equivalents                                          |  |      | 615,682   |                                       
|                                                                            |  |      |           |                                       
|Cash and equivalents - beginning balance                                    |  |      | 642,247   |                                       
|                                                                            |  |      |           |                                       
|Cash and equivalents - ending balance                                       |  | $    | 1,257,929 |                                       
|                                                                            |  |      |           |                                       
|Supplemental disclosures of cash flows information:                         |  |      |           |                                       
|Cash received/(paid) during the period for:                                 |  |      |           |                                       
|Interest                                                                    |  | $    | —         |                                       
|Income taxes                                                                |  | $    | —         |                                       
|Stockholder Advances forgiven and converted to additional paid in capital   |  | $    | —         |                                       



The accompanying notes are an integral part
of these consolidated financial statements.





-6-









AURASOURCE, INC.

(A Development Stage Enterprise)

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

JUNE 30, 2011 and MARCH 31, 2011

(UNAUDITED)



NOTE 1.    SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES



Current Operations
and Background — AuraSource, Inc. (“AuraSource” or “Company”) focuses on clean energy
technology development.  AuraSource developed the AuraCoalTM AuraFuelTM and processes. AuraSource
formed AuraSource Qinzhou Co. Ltd., a wholly owned subsidiary in China (“Qinzhou”) to acquire these types of Hydrocarbon
Clean Fuel (“HCF”) technologies, performing research and development related to the reduction of harmful emission and
energy costs for HCF technology and products based on this technology, licensing HCF technology to third parties and selling services
and products derived from this technology. Currently we developed two patent pending technologies: 1) ultrafine grinding and 2)
ultrafine separation.



In early 2010, we formed
Qinzhou Kai Yu Yuan New Energy Co., Ltd., a joint venture along with Mongolia Energy and Kaiyuyuan Mineral Investment Group (“KMIG”)
to build an AuraFuel plant. KMIG was to provide the full funding for this plant. AuraSource was to provide the project management
expertise and the license from China Chemical Economic Cooperation Center (“CCECC”).  The joint venture was to
pay ten percent of net profit as a technology license fee.  In 2010, KMIG paid $3 million for the license fee deposit to CCECC
and $2 million for start-up expenditures.  AuraSource invested its management resources and expenses.  The joint venture
contracted China Shandong Metallurgical Engineering Corp. (“CSMEC”) as EPC general contractor which would provide a
turnkey solution under an operation service contract.  In January 2011, since KMIG failed to fund the joint venture, the joint
venture was unable to make payments on the property and pay CSMEC.  As such, the construction was put on hold. On June 29,
2011, KMIG informed AuraSource it was dissolving the joint venture.  We are currently seeking alternative arrangements regarding
this project and exploring all of our options.  With limited capital resources, we will focus on our other technologies.



There can be no assurance
we will be able to carry out our development plans for our HCF technology, including AuraCoal and AuraFuel. Our ability to pursue
this strategy is subject to the availability of additional capital and further development of our HCF technology.  We
also need to finance the cost of effectively protecting our intellectual property rights in the United States and abroad where
we intend to market our technology and products.



Going Concern
— The accompanying consolidated financial statements were prepared assuming we will continue as a going concern.  We
have suffered recurring losses from operations since inception and have an accumulated deficit of $4,465,446 at June 30, 2011.  The
consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classifications of liabilities that might be necessary should we be unable to continue our existence.  The
recovery of our assets is dependent upon our continued operations.



In addition, our recovery
is dependent upon future events, the outcome of which is undetermined.  We intend to continue to attempt to raise additional
capital, but there can be no certainty that such efforts will be successful.



Basis of Presentation
and Principles of Consolidation — The accompanying consolidated financial statements were prepared in conformity
with accounting principles generally accepted in the United States of America (“US GAAP”).



The unaudited consolidated
financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information
and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted
pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended March 31, 2011 included in our Annual Report on Form 10-K. The
results of the three months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year
ending March 31, 2012.



Use of Estimates
— The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

-7-









Cash and
Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.



Income Taxes
— The Company accounts for income taxes in accordance with ASC Topic 740.  Deferred tax assets and liabilities are recognized
to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts
attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance related
to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.



Stock-Based Compensation
— The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial
statements over the period the employee is required to perform the services.



Foreign Currency
Transactions— The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying
statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose
functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between
the foreign currency and the functional currency that arises between the transaction date and the payment date.



Net Loss Per Share
— The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for
the period by the weighted average number of shares of common stock outstanding during the period.  Common equivalent shares
related to stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three
months ended June 30, 2011 and 2010 because their effect is anti-dilutive.



Concentration of
Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist
of cash.  The Company maintains its cash with high credit quality financial institutions; at times, such balances with
any one financial institution may exceed FDIC insured limits.



Financial Instruments
and Fair Value of Financial Instruments — Our financial instruments consist of cash and accounts payable.  The
carrying values of cash and accounts payable are representative of their fair values due to their short-term maturities. We
measure the fair value of financial assets and liabilities on a recurring basis. Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. Fair value measurements are to be considered from the perspective of a market participant that holds the asset or owes the
liability. We also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.



The standard describes
three levels of inputs that may be used to measure fair value:



|Level 1: |  | Quoted prices in active markets for identical or similar assets and liabilities.                                                                                                                             
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|Level 2: |  | Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities.
|         | 
|Level 3: |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.                                                              

The Company had no assets or liabilities
recorded to be valued on the basis above at June 30, 2011 or March 31, 2011.



Recent Accounting Pronouncements



In December 2010, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update No. 2010-29, “Business Combinations (Topic 805):
Disclosures of Supplementary Pro Forma Information for Business Combinations” (ASU 2010-29), which specifies pro forma disclosures
for business combinations to be reported as if the business combinations that occurred during the current year had occurred as
of the beginning of the comparable prior annual reporting period. The pro forma disclosures must also include a description of
material, nonrecurring pro forma adjustments. ASU 2010-29 is effective for business combinations with an acquisition date of January 1,
2011 or later. Adoption of the new requirement did not have an effect on the Company’s financial position, results of operations
or cash flows.



In May 2011, the FASB issued
Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”. The amendments result in common fair value measurement and
disclosure requirements in US GAAP and International Financial Reporting Standards (IFRSs), and do not require additional fair
value measurements and are not intended to establish valuation standards or affect valuation practices. The amendments in this
update are effective during interim and annual periods beginning after December 15, 2011. Adoption of the new requirement
is not expected to have an effect on the Company’s financial position, results of operations or cash flow.



-8-









In June 2011, the FASB
issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”.
In this update, FASB eliminated the option to present components of other comprehensive income as part of the statement of changes
in stockholders’ equity. The amendments require that all non-owner changes in equity be presented either in a single continuous
statement of comprehensive income or in two separate but consecutive statements. The amendments in this update are effective for
fiscal years, and interim periods within these years, beginning after December 15, 2011. Adoption of the new requirement
is not expected to have an effect on the Company’s financial position, results of operations or cash flow.

There were no other
significant changes in the Company’s critical accounting policies and estimates during the three months ended June 30, 2011
compared to what was previously disclosed in the Company’s Form 10-K for the year ended March 31, 2011.



NOTE 2 - CONCENTRATION OF CREDIT RISK



We maintain our
cash balances in financial institutions that from time to time exceed amounts insured by the Federal Deposit Insurance Corporation
(up to $250,000, per financial institution as of June 30, 2011). As of June 30, 2011 and March 31, 2011, our deposits exceeded
insured amounts by approximately $1,008,000 and $459,890, respectively.  We have not experienced any losses in such accounts
and we believe we are not exposed to any significant credit risk on cash.



Currently, we maintain
a bank account in China.  This account is not insured and we believe is exposed to significant credit risk on cash.



NOTE 3 – DUE FROM AFFILIATE



As of June 30, 2011 and March 31, 2011,
an affiliated party, Timeway International Ltd, holds in trust $138,540 and $67,643, respectively.  This money is used
to pay various day to day expenses. Timeway International Ltd is controlled by our CEO.

NOTE 4 – INTANGIBLE



We entered into an agreement
with Beijing Pengchuang Technology Development Co. (“Pengchuang”), Ltd., an independent Chinese company, to purchase
fifty percent of the intellectual property related to ultrafine particle processing. Pengchuang developed a highly efficient and
low energy consumption grinding technology, which utilizes fluid shock waves to make ultrafine particles. This technology can be
applied to the coal water slurry, solid lubricant and other material grinding processes. Through the joint development and ownership
agreement, AuraSource will enrich its intellectual property portfolio, enabling the further development of AuraCoal, its Hydrocarbon
Clean Fuel technology. AuraSource Qinzhou will utilize the particle grinding technology in its AuraCoal Qinzhou production line,
as well as license it to others in non-related industries.



We issued 600,000 shares
of common stock for the acquisition of certain intangibles. We acquired intangibles of $753,530. The shares issued in connection
with the acquired intangibles were valued at $606,000 or $1.01 per share which was the share price on August 8, 2010, the acquisition
date. The Company paid cash for the remainder of the amount due.



NOTE 6 – STOCK ISSUANCE



During the year ended March
31, 2011, the Company issued 1,000,000 shares of common stock.  The Company issued 400,000 shares for $1.25 per share.  The
Company recorded net proceeds from the sale of these shares of $500,000.  The Company issued 600,000 shares of common
stock for the acquisition of certain intangibles.  The Company acquired intangibles of $753,530.  The shares
issued in connection with the acquired intangibles were valued at $1.01 per share or $606,000.



On June 17, 2011, the Company
completed a private placement offering to certain accredited investors pursuant to which the Company sold 2,000,000 shares of the
Company’s common stock resulting in gross proceeds of $1,000,000 to the Company.



NOTE 7 - STOCK OPTIONS



On April 1, 2011, we granted
60,000 options to purchase shares of our common stock at $0.75 per share to members of our BOD. In April 2010, we granted 60,000
options to purchase shares of our common stock at $1.00 per share to certain executives of the Company. The options vest quarterly
and have an expiration period of 10 years.  The total grant date fair value of the outstanding options was $91,456. We will
record stock based compensation expense over the requisite service period, which in our case approximates the vesting period of
the options. During the three months ended June 30, 2011, the Company recorded $9,017 in compensation expense for the vesting of
options.  The Company assumed all stock options issued during the quarter will vest.   Though these expenses
will result in a deferred tax benefit, we have a full valuation allowance against the deferred tax benefit.





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The Company adopted the
detailed method provided in ASC 718 for calculating the beginning balance of the additional paid-in capital pool (“APIC
pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC
pool and Consolidated Statements of Cash Flows of the income tax effects of employee stock-based compensation awards that are outstanding.



The fair value of each
stock option granted is estimated on the grant date using the Black-Scholes option pricing model.  The Black-Scholes
option pricing model has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant.  The
risk free interest rate is based upon market yields for United States Treasury debt securities at a 7-year constant maturity.  Dividend
rates are based on the Company’s dividend history.  The stock volatility factor is based on the last 60 days of
market prices prior to the grant date.  The expected life of an option grant is based on management’s estimate.  The
fair value of each option grant, as calculated by the Black-Scholes method, is recognized as compensation expense on a straight-line
basis over the vesting period of each stock option award.



These assumptions were
used to determine the fair value of stock options granted using the Black-Scholes option-pricing model:



|                             |  |             |               
|---------------------------- |  | ----------- | --------------
|Dividend yield               |  |             | 0.0%          
|Volatility                   |  |             | 25% to 155%   
|Average expected option life |  | 10.00 years |               
|Risk-free interest rate      |  |             | 1.76% to 2.59%
|                             |  |             |               



The following table summarizes
activity in the Company's stock option grants for the three months ending June 30, 2011:



|                          |  | Number of Shares |         | Weighted Average Price Per Share
|------------------------- |  | ---------------- | ------- | --------------------------------
|Balance at March 31, 2011 |  |                  | 120,000 |                                 
|Granted                   |  |                  | 60,000  |                                 
|Balance at June 30, 2011  |  |                  | 180,000 |                                 





The following summarizes
pricing and term information for options issued to employees and directors outstanding as of June 30, 2011:



|                         |  |  | Options Outstanding                 |  |  |  | Options Exercisable                         |  |  |   |                                 | 
|------------------------ |  |  | ----------------------------------- |  |  |  | ------------------------------------------- |  |  | - | ------------------------------- | 
|Range of Exercise Prices |  |  | Number Outstanding at June 30, 2011 |  |  |  | Weighted Average Remaining Contractual Life |  |  |   | Weighted Average Exercise Price | 
|                         |  |  |                                     |  |  |  |                                             |  |  |   |                                 | 
|$3.50                    |  |  | 60,000                              |  |  |  | 7.75                                        |  |  | $ | 3.50                            | 
|$1.00                    |  |  | 60,000                              |  |  |  | 8.75                                        |  |  | $ | 1.00                            | 
|$1.00                    |  |  | 60,000                              |  |  |  | 9.75                                        |  |  | $ | 0.75                            | 
|Balance at June 30, 2011 |  |  | 180,000                             |  |  |  | 8.75                                        |  |  | $ | 1.75                            | 





NOTE 8 - LOSS PER SHARE



The following table sets
forth common stock equivalents (potential common stock) for the three months ended June 30, 2011 and 2010 that are not included
in the loss per share calculation above because their effect would be anti-dilutive for the period indicated:



|                                           |  | 
|------------------------------------------ |  | 
|                                           |  | 
|Weighted average common stock equivalents: |  | 
|Non-Plan Stock Options                     |  | 
|                                           |  | 



-10-







ITEM 2 .  MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The information contained
in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended March 31,
2011 and presume readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and other information contained in such Form 10-K.  The following discussion
and analysis also should be read together with our consolidated financial statements and the notes to the consolidated financial
statements included elsewhere in this Form 10-Q.



The following discussion
contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995.  Such statements appear in a number of places in this Report, including, without limitation,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  These statements
are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are
beyond our control.  Forward-looking statements speak only as of the date of this quarterly report. You should not put
undue reliance on any forward-looking statements.  We strongly encourage investors to carefully read the factors described
in our Annual Report on Form 10-K for the year ended March 31, 2011 in the section entitled “Risk Factors” for a description
of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume
no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should
also be read in conjunction with the unaudited consolidated financial statements and notes thereto that appear elsewhere in this
report.



Overview



AuraSource
focuses on clean energy technology development.  AuraSource developed the AuraCoalTMand AuraFuelTMprocesses. The Company was incorporated
on March 15, 1990 and started its current business in December 2008. AuraSource formed AuraSource Qinzhou Co. Ltd., a Wholly Foreign
Owned Enterprise  in China to develop and acquire Hydrocarbon Clean Fuel (“HCF”) technologies, performing
research and development related to HCF technology and products based on this technology, licensing HCF technology to third parties
and selling services and products derived from this technology. Currently we developed two patent pending technologies: 1) ultrafine
grinding and 2) ultrafine separation.



In early 2010, we formed
Qinzhou Kai Yu Yuan New Energy Co., Ltd., a joint venture along with Mongolia Energy and Kaiyuyuan Mineral Investment Group (“KMIG”)
to build an AuraFuel plant. KMIG was to provide the full funding for this plant. AuraSource was to provide the project management
expertise and the license from China Chemical Economic Cooperation Center (“CCECC”).  The joint venture was to
pay ten percent of net profit as a technology license fee.  In 2010, KMIG paid $3 million for the license fee deposit
to CCECC and $2 million for start-up expenditures.  AuraSource invested its management resources and expenses.  The joint
venture contracted China Shandong Metallurgical Engineering Corp. (“CSMEC”) as EPC general contractor which would provide
a turnkey solution under an operation service contract.  In January 2011, since KMIG failed to fund the joint venture, the
joint venture was unable to make payments on the property and pay CSMEC.  As such, the construction was put on hold. On June
29, 2011, KMIG informed AuraSource it was dissolving the joint venture.  We are currently seeking alternative arrangements
regarding this project and exploring all of our options.  With limited capital resources, we will focus on our other technologies.



Critical Accounting Policies and Estimates



The preparation of financial
statements and related disclosures in conformity with accounting principles generally accepted in the United States requires estimates
and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent
assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company's critical accounting
policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and
which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates
of matters that are inherently uncertain. We believe that our estimates and assumptions are reasonable under the circumstances;
however, actual results may vary from these estimates and assumptions. We have identified in Note 1 - "Summary of Accounting
Policies" to the Financial Statements contained in this Quarterly Report certain critical accounting policies that affect
the more significant judgments and estimates used in the preparation of the financial statements.



-11-







Results of Operations



For the Three Months Ended June 30, 2011
and 2010



General and Administrative Expenses



General and administrative
expenses were $332,919 and $316,667 for the three months ended June 30, 2011 and 2010, respectively.  The increase of
approximately $16,000 in expense was due to increase in staffing.



Interest Income, Interest Expense and Other



Interest income/(expense)
and other was $8,608 and $1,231 for the three months ended June 30, 2011 and 2010, respectively.  The increase is due
to foreign currency exchange gains the Company incurred in the three months ended June 30, 2011.



Liquidity and Capital Resources



Net cash used in operating
activities was $326,486 and $336,737 in the three months ended June 30, 2011 and 2010, respectively.  The increase was
primarily due to non-cash transaction of stock options and stock issued for services rendered added back to operating activities
in the current year.  There were no such amounts added back in the prior period.



Net cash used in investing
activities was $58,878 and zero in the three months ended June 30, 2011 and 2010, respectively.   The difference is the
increase in capital equipment purchases for the three months ending June 30, 2011.



Net cash provided by financing
activities was $1,001,046 and zero in the three months ended June 30, 2011 and 2010, respectively.  The difference of
$1,001,046 in cash flows from financing activities was due to proceeds from the issuance of common stock in 2011.



The Company suffered recurring
losses from operations and has an accumulated deficit of $4,465,446 at June 30, 2011.  The Company has incurred losses
of $324,311 and $315,436 for the three months ended June 30, 2011 and 2010, respectively. Currently, we have not generated any
revenues.



Inflation and Seasonality



Inflation has not been
material to us during the past five years. Seasonality has not been material to us.



Recent Accounting Pronouncements



Refer to the notes to the
consolidated financial statements in our March 31, 2011 Form 10-K for a complete description of recent accounting standards which
we have not yet been required to implement and may be applicable to our operation, as well as those significant accounting standards
that have been adopted during the current year.



Off-Balance Sheet Arrangements



As
of June 30, 2011, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.



-12-







ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.



As a “smaller
reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item
3.





ITEM 4 - CONTROLS AND PROCEDURES



We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules, regulations
and related forms, and that such information is accumulated and communicated to our principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required disclosure.



As of June 30, 2011, we
carried out an evaluation, under the supervision and with the participation of our principal executive officer and our principal
financial officer of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation,
our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this report.



PART II - OTHER
INFORMATION

ITEM 1 – LEGAL PROCEEDINGS



We are not a party to any
current or pending legal proceedings that, if decided adversely to us, would have a material adverse effect upon our business,
results of operations, or financial condition, and we are not aware of any threatened or contemplated proceeding by any governmental
authority against us.  To our knowledge, we are not a party to any threatened civil or criminal action or investigation.



ITEM 1A – RISK FACTORS



In addition to the other
risk factors and information set forth in this report, you should carefully consider the factors discussed in Part I, “Item
1A. Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2011, which could materially affect our
business, financial condition or future results. The risks described in our Annual Report on Form 10-K is not the only risks facing
the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition, operating results and/or cash flows.



|ITEM 2 | - UNREGISTERED SALES OF EQUITY SECURITIES
|------ | -----------------------------------------



None



|ITEM 3 | - DEFAULTS UPON SENIOR SECURITIES
|------ | ---------------------------------



None



ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None



|ITME 5 | - OTHER INFORMATION
|------ | -------------------



None

-13-







ITEM 6.

|Exhibit |  | Description                                                                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1    |  | Certification of the Company's Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                               
|31.2    |  | Certification of the Company's Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                               
|32      |  | Certification of the Company's Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.



-14-







SIGNATURES



Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



|                      | AURASOURCE, INC.               | 
|--------------------- | ------------------------------ | 
|                      |                                | 
|                      |                                | 
|Date: August 12, 2011 | /s/  PHILIP LIU                | 
|                      | Name: Philip                   | 
|                      | Title: Chief Executive Officer | 
|                      |                                | 
|Date: August 12, 2011 | /s/  ERIC STOPPENHAGEN         | 
|                      | Name: Eric Stoppenhagen        | 
|                      | Title: Chief Financial Officer | 





-15-





EXHIBIT INDEX

|Exhibit |  | Description                                                                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1    |  | Certification of the Company's Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                               
|31.2    |  | Certification of the Company's Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                               
|32      |  | Certification of the Company's Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.









-16-